SRE (11/7/2018): As Cameron comes on-line LNG capex to accelerate; Stock to follow

Activist investors’ go home having been schooled
… global interest in LNG liquefaction (LNGL) …, … as expected. SRE continues …
As expected … likely … within …; …, in our opinion. No surprise given SRE must deploy …
Surprisingly signals … in other …
5-year Oncor capex through 20XX … to $XXX from $XXX
20XX … expected …
SRE looks to do … review in 2019; we look for SRE to …
We look for SRE to build a major …
… in 20XX AEPS … . We look for SRE to … . Expected to grow … XX%-XX% to match

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SRE (10/18/2018): Oncor to buy InfraREIT & SRE to buy Sharyland; good for investors

Transaction Details:

· Oncor, SRE’s Texas utility subsidiary of which SRE owns some XX.X%, announced the acquisition of 100% ownership of InfraREIT, Inc.’s (IR) transmission assets for $1,275MM (SRE’s share estimated at about $XXXMM; TTI’s share estimated at some $XXXMM)

o IR owns transmission assets in west, north, and south Texas

o Transaction valued at some XX.Xx on a P/E basis and some XX.Xx on a EV/2019E-Rate-Base

· Separately, SRE agreed to buy a 50% LP ownership interest in Sharyland Utilities (SLand) for $XXMM

o SLand owns transmission assets in north and south Texas

o The other 50% is owned by Hunt and Hunt will be a non-economic general partner

o Transaction valued at some XX.Xx on a P/E basis and some XX.Xx on a EV/2019E-Rate-Base

· SRE is … its 2018-2020 AEPS guidance at between:

o 2018: $X.XX-$.XX per share (GAAP EPS guidance improves to $X.XX-$X.XX from $X.XX-$X.XX)

o 2019: $X.XX-$X.XX per share

o 2020: $X.XX-$X.XX per share

o Includes some $XXXMM-$XXXMM (SRE’s share) of estimated 2019 earnings from both acquisitions

· Financing to be provided from asset sales of which some $XXXB was already secured through the sale of all of SRE’s interest in solar projects and one wind project to Consolidated Edison (ConEd)

o Balance of the funds from the sale of assets to ConEd will be used to repay debt

o No new equity is needed to fund these acquisitions

· Deals are subject to regulatory approval including the FERC and is expected to close by mid-2019

o Single combined regulatory filing is expected to be made for both transactions

Transaction Analysis: Reserved for paid subscribers and clients only

Conclusion: Reserved for paid subscribers and clients only

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Strong economic activity should drive commodity stocks well into 2019

Warmer than normal summer has led to robust natural gas prices: … we believe that natural gas prices will be… the forward curve would suggest.

· We look for 2018 exit prices in the … and average 2019 price in the range of about …: Assuming …, we’d expect natural gas prices to … by November then move towards the … level by December 2018. We would expect natural gas prices to drift towards the … range by mid-year and break back towards … levels by yearend 2019, averaging about … for the entire year.

· We expect economic growth to … 2H2018: …; we expect … to … at least 2019, if not into YE2020.

· Therefore, we expect 2H2018 and 1H2010 power gross profit … than expectations: … .

· Similarly, we’d expect natural gas infrastructure businesses to … for 2H2018 through 1H2019: … .

· Utility performance is also likely to … economy: … .

· Threat or danger to our thesis is pending …: … .

· We believe LNG is likely … economy and weather: … .

· However, with … economic activity, we’d expect interest rates to …: … .

· Therefore, we believe … underperform …:

Conclusion is reserved for our paid subscribers only.

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SRE 2Q2018 Earnings (8/7/2018): Execution is back on menu but activist investor interference continues

With Oncor closed, execution is back in focus, but activist investors’ (AI) persistence continues
We look for increased TX/Gulf-Coast …, but not …
2018E AEPS guidance same at $5.30-$5.80/share
2019 GRC filed 10/2017 w/FD expected late-2018/early-2019
We look for SRE to … guidance in ST, MT and LT
Within next 12-months … Cameron … ; ECA … also … . We feel global LNG supply/demand has tipped … , especially in … .
SRE looking at potential … and to repatriate some … .
iEnova continues to add projects; it has $Bs in potential opportunities
Wildfire legislation potential … according to SRE
ST-Target remains $XXX/share, but NIV/share … to some $XXX/share from $XXX/share

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Auvila Quick Note (SRE; 6/28/2018): SRE Analyst Day: If SRE didn’t deliver KO blow to AI then it’s a TKO win

Elliott Management & Bluescape Energy Partners (together Activist Investors (AI)) proposed breakup of SRE into 4 parts: …
We oppose this strategy, and management delivered measured but decisive rebuttal of AI proposal, in our opinion
Unlike AI’s understanding of SRE’s strategy, it is not about building a power market conglomerate but …, which, in our opinion, SRE is doing very well
Also, outside of the …, none of the other businesses are dependent …, and management had already decided to sell … which necessitated a write-down of some $X.X…
SRE vigorously defended keeping …, which we …
SRE noted that neither of its …, another misunderstanding by the AI, and noted that … would spinoff some $XXB in future cash flow, after …
SRE also noted that … is looking to invest in …, including … interested in taking equity position in …
With regards to CA wildfires, SRE is in-line with PCG and EIX in their view that inverse condemnation must go
SRE noted that over 2018-2020 period, it has some $XXB of investments lined-up with upside potential that would deliver some XXX% CAGR in earnings, XX% CAGR in EPS, XX% CAGR in dividends, and continued parent debt reduction; post 2020, SRE estimates potential investment opportunity of some $XXXB, much of it geared towards the development …
Conclusion: We strongly believe that AI are dead-wrong starting with their general understanding of SRE’s overall strategy. Therefore, … .

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Auvila Flash on SRE (06/11/2018): If reported correctly, Elliott Management and Bluescape Energy Partners proposed restructuring is off-target, in our opinion


Elliott Management and Bluescape Energy Partners (AI: Activist Investors) acquired some 4.9% of SRE or some $1.3B according to CNBC
In a letter sent to SRE’s management and board of directors, which the company confirmed, CNBC is reporting that the AI believe the reason for SRE’s underperformance despite the stable of valuable assets is because of the complex strategy and diffused focus
It is proposing to restructure the company by breaking it apart into at least three pieces:
Keeping the California utilities and its Texas Utility (formerly Oncor) together;
Packaging its LNG and Midstream businesses together as a second company; and
Divesting, the renewable energy business, iEnova (Mexican energy infrastructure company), and its South American utilities businesses
Revamping the compensation system to more align management incentive with shareholder value creation
By doing so, the AI believe they could push SRE’s stock price to between some $139-$158 per share
The AI supposedly describes SRE’s strategy as a failure to build a power market conglomerate
The AI successfully steered NRG towards a successful strategy and helped management better realize the potential of NRG’s assets, which we strongly supported
The AI also believe that SRE is cannibalizing Utility cash flow to fund other projects — implication is that this is a waste of shareholder capital

Analysis is reserved for our paid subscribers only

Conclusion is reserved for our paid subscribers only

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SRE 1Q2018 Earnings (05/07/2018): With Oncor closed, we look for flourishing Twin Towers strategy

With Oncor closed, we look for SRE to increase … and investment in …: Committed to $XXB-up-to-$XXB … capital spending thru 20XX; … generation and R&M … , especially if it has …
2018E AEPS guidance … at $X.XX-$X.XX/share
SRE is expected to grow dividend X%-X% to match
2019 GRC filed 10/2017 w/FD expected late-2018/early-2019
We look for SRE to … guidance in ST, MT and LT
Within next XX-… we look for Cameron 4&5 …; … also seems likely. Even … seems likely, given … .
SRE looking at … and looks to … from 2018-2022 w/… tax expense
IEnova …; it has billions in potential opportunities
We … SDG&E’s move towards … and more …, and SCG’s continuing emphasis on …
Potential for … projects in … dominant regions like … and even … could be another future growth source

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Auvila Flash on SRE (03/12/2018): The magic continues at Sempra Energy (SRE)

Sempra Energy announces its management succession plan with the unexpectedly early retirement of Debra Reed from her position as Chairman, President and CEO of SRE by December 1, 2018
From the illustrious senior management team at SRE that includes exemplary luminaries such as Dennis Arriola, Joe Householder and Martha Wyrsch, Jeff Martin, currently CFO, emerges as heir to Debra Reed
The choice of Jeff Martin to succeed Debra Reed …, in our opinion
Jeff will assume the role of CEO by May 1, 2018, and presumably Executive Chairman …
Joe Housholder will assume the role of President as Jeff ascends to CEO on May 1, 2018
We would expect … retire within the … with … retirement
However, we are somewhat concerned that the succession to CFO has not been announced, but we would hope that SRE selects someone from the plethora of its internally-qualified candidates to succeed Jeff as CFO; may be …
With Jeff assuming the role of CEO, we would … in SRE’s strategy:

We would continue to expect high levels of investments in its …
… into the SRE family of businesses
Continued participation in … and … deals, …, and … transmission
The one exception may be … businesses with the proceeds …
Continued exceptional … procedures and processes
Further expansion of its … business once the … are established

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Auvila Flash SRE (03/07/2018): SRE 2018E AEPS Guidance — We made a mistake in our assumption

Previously we had estimated that the accretion for SRE on its Oncor acquisition could be as much as $0.61/share instead of the management estimated $0.20/share. Having spoken to the company, our estimate is incorrect, and we apologize. The correct calculation is as follows:

SRE’s estimate for Oncor’s 2018E net income: $XXXMM

SRE’s interest in Oncor: 80%
SRE’s estimated 2018 annual share of net income: $XXXMM
Assume March 15, 2018 closing of Oncor acquisition
SRE’s estimated 2018 actual share of Oncor’s net income: $XXXMM (XXX/XXX)
Annual Interest Expense on $XX,XXXMM financing at an average interest rate of XX.XXX%: $XXXMM
2018 Interest Expense on $XX,XXXMM financing: $XXXMM (assuming … interest expense)

Annual Preferred Dividend on $XMM financing at the coupon rate of XX%: $XXXMM
2018 Preferred Dividend on $XMM financing: $XXXMM (assuming … interest expense)

Assumed share count for 2018: XXXMM

($XXXMM – $XXXMM – $XXXMM) / XXXMM = $XXX/share

We made the incorrect assumption that the … would accrue to the benefit of …, and we incorrectly took SRE’s share of Oncor’s … then subtracted … then multiplied the result by XX% instead of starting with XX% of … net income.

… .

Regardless, we feel strongly that …, and we’re not … is necessarily … . Therefore, we wait for … before we … estimates.

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SRE 4Q2017 Earnings (02/27/2018): Oncor ready to close by 1Q18 end; Future prospects bright

With Oncor close, we look for SRE to increase …: Committed to $XXB-up-to-$XXB … thru 2022
2018E AEPS guiding to $XX-$XX/share; mid-point’s … estimate, but too … given 2017A Oncor results
SRE is expected to grow dividend XX%-XX% to match
2019 GRC filed … expected …
Within next 12-months we look for … and …; … also seems …. Even …, given …
SRE looking at … and w/…
iEnova’s has …; we support , … and … and …

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